Operational Performance

In the past years, scholars argued a number of criteria of operational performance measures. Among those, Wheelwright (1978), Schmenner (1981), Hayes and Wheelwright (1984), and Hill (1989) have contributed various dimensions of operational performance measures such as cost, quality, delivery and flexibility. Later on, Vickery has introduced rate of new product launching, so called “speed” as another dimension of the measures (Vickery et al., 1997). Skinner (1974) mentioned short delivery, superior quality, dependable delivery, fast new product development, volume flexibility, and low cost.

Wheelwright (1978) emphasized efficiency, dependability, quality, and flexibility. After the previous research, Wheelwright, in work with Hayes in another research, agreed upon changing efficiency factor into cost (Hayes & Wheelwright, 1984). Leong et al. (1990) in his literature review mentioned five main aspects: cost, quality, delivery, flexibility, and responsiveness.

Besides those scholars described above, there are more contributors to the operational performance (manufacturing performance) measures (Krajewski & Ritzman, 1987; Ferdows & DeMeyer, 1990; Droge et al., 1994; Vokurka et al., 1998; Youndt et al., 1996 and; etc). Youndt et al. (1996) suggested four dimensions: cost, quality, delivery flexibility and scope flexibility. Delivery flexibility was a timing of the introduction of new products and on-time delivery. Scope flexibility was about variety of things: adjusting product mix, handling non-standardized orders and producing product in small lot (Jayaram, et al., 1999).

Dimensions of Operational Performance:

1. Product quality is strongly required by customers. Product quality includes several dimensions such as product specifications (standard product), product performance (product functions), product reliability, product serviceability (reparability of service), product durability (time period of product), etc (Kotler, 2003, Hill and Jones, 2003). “A product is said to have superior quality when customers perceive there to be greater value in the attributes of a specific product, compared to the same attributes in rival products,” said Hill and Jones (2003, p. 88). In order to produce high quality product for suiting customer needs, most organizations currently adopt total quality management for better results. Based on research by Meyer, Nakane, Miller, & Ferdows (1989), they listed top ten manufacturing concerns of firms in Europe, Japan, and North America. Firms in Japan and US concerned the most quality issue whereas European gave cost problem as their first priority.

2. Low cost production is the ability to reduce costs through efficient operations, process technology and/or scale economies (Vickery, Droge, & Markland, 1997). Cost is one the two main generic strategies, pursued and adopted to gain competitive advantage (Porter, 1980, 1985). Porter used value chain system to explain how costs can be saved from procurement till delivery processes. With, careful management organizations can save raw material handling costs, inventory costs, input utilization cost, and overhead costs, etc. According to Hill and Jones (2003), cost leadership provides two advantages: first, if its closest competitors compete in the same price range or market segment, the cost leader is able to capture more benefits due to its low cost structure; second, cost leader can charge low price than competitors, as a result, gaining more market share.

3. Product Delivery: Service organization can differentiate from others by designing fast delivery network (Kolter, 2003). Zeithaml and Britner (2003, p. 472) comment, “The best opportunity for surprising customers is when services providers and customers interact during delivery.” The idea of product and service delivery is not much different. Service-buying customers demand on-time delivery or even fast, sodo product-buying consumers. No matter what kind of industry organizations operate in, on-time and fast delivery is very important to keep existing customers.

4. Production Flexibility is about the reduction of production lead times and set-up times, the development of new processes for new products, and offering workers a variety of tasks (Meyer, Nakane, Miller, & Ferdows,1989). According to the work of Vickery, Droge, & Markland (1997), flexibility is divided into three parts: product flexibility is the ability to handle difficult, non-standard, or special orders; process flexibility is ability to change product mix quickly and easily and achieve efficient cost production; volume flexibility is the ability to scale product process up and down quickly to meet market demand.